B&Bs are Britain’s most expensive type of small business to buy

Intellectual property businesses such as internet and service companies had the lowest sale valuations

When using a valuation model based on multiples of turnover, bed and breakfasts (B&Bs) are the most expensive type of small company to buy, according to research by Direct Line for Business.

Analysis of small businesses for sale in the UK revealed that, on average, B&Bs have a sale valuation of £4.49 for every £1 of turnover generated. Care homes were listed as the second most expensive, with an average sale valuation of £2.56 per £1 of turnover generated, followed by nurseries at £1.91 per £1 of turnover.

It’s thought that these three businesses top the table as the buyer will usually be buying a valuable asset such as land and/or property. On average, small businesses on sale in Britain are valued at £1.74 for every £1 of turnover generated.

Internet and service businesses were found to be the industry sectors with the lowest sale valuations compared to business turnover, and can be purchased for an average of £0.51 and £0.81 per £1 of turnover respectively – this was followed by pubs at £0.96 for every £1 of turnover.

Unlike businesses with concrete assets, internet company purchases will usually only involve the transfer of intellectual property which does not hold as much value.

Nick Breton, head of Direct Line for Business, said: “Small businesses are the lifeblood of the UK’s economy and it’s great to see that in many sectors there are deals to be had. People looking to become their own boss or invest in a business can purchase an existing enterprise with a proven revenue stream and customer base.

“However, whilst turnover is a positive marker it isn’t the whole story. Current and future profitability need to be thought about when assessing the potential value of a business as well as the assets that come with the business. There are many different models for valuing a business so it is important potential purchasers analyse the valuation price using a range of metrics.

“As such, ensure that you have undertaken thorough due diligence and recognise that you are not just taking on a business, you are potentially taking on staff, stock and property, and as such all of this needs to be protected.”

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